ESG Metrics and Measurements: Four Insights From the S&P 500

S&P 500 companies have become more adept in setting precise ESG targets and quantifiably measuring success, suggests a Conference Board report that conducted a comprehensive review of 2023 filings.

Here are four key insights from the Conference Board data on how large companies are evolving:

• Not backing down. Despite increasing ESG backlash, most large employers will continue to link executive compensation to specific ESG objectives.
  
  
  • Over three-fourths of S&P 500 companies incorporate ESG performance metrics into their incentive plans compared to just 23.8% of smaller companies with annual revenue under $100 million.
    
    
• Focus on what matters most.  In response to anti-ESG pressure, companies will pay closer attention to metric selection and will prioritize the objectives that drive sustainable value. As organizations become more sophisticated in entrenching ESG in the business operations, they will identify metrics that support both long-term shareholder value and a broader societal good.
  
  
  • Today, metrics are typically selected based on what is relatable to the company’s industry. For instance, 80% of energy companies include an environmental goal compared to only 24% of IT companies.
    
    
• Next stop – LTI plans. Compensation committees are more comfortable with the metric setting process itself and have access to better benchmarking. Given that many “E” and “S” goals have a long-term horizon, there may be more appetite for putting incentives in the LTI plan.
  
  
  • The percentage of S&P 500 companies that include ESG metrics in both the annual plan and long-term plan is steadily growing – from 7.3% in 2021 to 12.4% in 2023.
    
    
• Quantifiable assessments. A common criticism of ESG goals is the inability to quantify the achievement of results. But this has improved, and companies are better equipped to use distinct, weighted metrics and scorecards that incorporate quantified measures.
  
  
  • Stand-alone metrics in the S&P 500 increased from 25.5% to 31% since 2021 and the use of scorecards jumped from 21% to 35.2% - both of which are twice as high as in the Russell 3000.

See separate story for a deep dive into how companies are approaching climate and environmental goals versus social and diversity goals.